BlackBerry Staggers to a Deeper, $4.4 Billion Loss

BlackBerry introduced the Z10 model earlier this year in Toronto. The company said it was stepping back from its handset business.Credit
Nathan Denette/CP, via Associated Press

OTTAWA — BlackBerry, the hobbled smartphone maker, reported more dire financial news on Friday, posting a $4.4 billion loss and a 56 percent drop in revenue in its latest quarter. The company also outlined a sharp retreat from its once-core handset business by entering a partnership with the Asian contract manufacturer Foxconn.

The loss, which follows one of nearly $1 billion in the previous quarter, again reflected the failure of the BlackBerry 10 line of phones, which were portrayed as a lifesaver for the company when introduced at the beginning of the year. The latest loss included a $2.7 billion write-down mainly related to BlackBerry 10 phones, including the Q10 and the Z10.

Of the 4.3 million BlackBerrys bought by consumers and businesses during the quarter, 3.2 million were models that use the obsolete BlackBerry 7 operating system. The meager sales of the phone led revenue to plunge to $1.2 billion, compared with $2.7 billion in the same period a year ago.

Last month, BlackBerry failed to find a buyer for the company and replaced Thorsten Heins, the chief executive, with John S. Chen, the former chairman of the software company Sybase. Mr. Chen has since fired several high-level executives at the company.

But the first real strategic change under Mr. Chen came on Friday, when he announced the company’s arrangement with Foxconn. BlackBerry, like many other hardware companies, including Apple, has long relied on Foxconn to manufacture phones. The partnership appears to take the relationship to a new level.

The arrangement also seems to be a way for BlackBerry to effectively hand over some of its handset business without running afoul of Canadian foreign investment laws. The government of Canada has made it clear that, because of national security concerns, BlackBerry could not sell any significant portion of the company to a Chinese company or a business with extensive Chinese operations, as Taiwan-based Foxconn does.

Video

Chen on BlackBerry’s Turnaround Prospect

In an interview with CNBC, John S. Chen, BlackBerry’s chief executive, discussed the future of the company and its handset business.

In a conference call with analysts, Mr. Chen said that BlackBerry would jointly develop and manufacture some phones with Foxconn in the future, including a new model already in prototype form that is aimed at the Indonesian market. Because Foxconn will carry the inventory of those phones on its books, Mr. Chen said that BlackBerry would be shielded from large write-downs of unwanted handsets in the future.

The financial implications of the arrangement are unclear. Foxconn will work the cost of that inventory into the price it charges BlackBerry for building the phones and a fee for its hardware design and development service. But Mr. Chen said that BlackBerry would receive the “majority of the margin” when the phones are sold. That amount may be relatively little, as Mr. Chen suggested that the company aspired to simply break even on hardware.

In what seemed to be an even further distancing from the company’s past, Mr. Chen was remarkably open to the idea of joining the competition.

“I would love to find a way to make our BlackBerry experience on the Android and the iOS,” he said, referring to the two dominant mobile operating systems. “It’s not without difficulties, as you all know. But it’s something that we’re very interested in trying.”

Mr. Chen said negotiations with Foxconn were well underway when he joined the company.

In a conference call with analysts, Mr. Chen was considerably more candid and relaxed than Mr. Heins had been in similar situations. But Mr. Chen’s message about how the company will be revived after the BlackBerry 10 disaster was not significantly different.

BlackBerry, he said, will focus its attentions on its traditional business of serving businesses and governments, particularly groups that require high levels of security. He repeated the company’s promise to soon introduce ways to generate money from its BlackBerry Messenger instant-messaging service. He said he hoped to expand the automotive business of the company’s QNX Software Systems subsidiary, just as Mr. Heins had tried. And he particularly emphasized the potential in software that allows companies and governments to manage and control BlackBerrys used by their employees and their Android-based phones and iPhones.

Video

BlackBerry’s Chief on Foxconn

In an interview with CNBC, John S. Chen, BlackBerry’s chief executive, discussed the company’s deal with Foxconn to jointly develop and manufacture some phones.

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“We want to see some signs of growth in demand,” Mr. Colello said. “They’re making some proper moves, but it’s still demand that’s the issue.”

Maynard Um, an analyst with Wells Fargo, echoed that cautious assessment. In a note to investors, he characterized the company’s news on Friday as being “baby steps to recovery.”

Like many analysts, Mr. Um is particularly focused on BlackBerry’s cash reserves. While the company’s cash reserves rose to $3.2 billion from $2.6 billion in the previous quarter, it received a $1 billion infusion of convertible debt from an invest group led by its largest shareholder, Fairfax Financial Holdings of Toronto. That means that the company consumed $400 million in cash in the last three months, largely in the cost of layoffs and other restructuring moves.

Mr. Chen said that he was confident that BlackBerry had enough cash to get it through to 2016 when, he said, it has “a really good shot” at becoming profitable again.

Correction: December 20, 2013

An earlier version of this article misstated the description of Foxconn, the contract manufacturer. It is headquartered in Taiwan, not China.

A version of this article appears in print on December 21, 2013, on Page B1 of the New York edition with the headline: BlackBerry Staggers to a Deeper, $4.4 Billion Loss. Order Reprints|Today's Paper|Subscribe